What Business Sectors are in Need of Innovative Thinkers?
As the world creeps out of the worst financial crisis in decades, company leaders must avoid falling back into bad business habits that preceded it. One of these habits is a lack of attention to innovation. Innovation, from the old way of thinking, is mainly needed in times of crisis or perhaps in an industry that is reaching maturity. But earth‐shaking change for companies can now happen almost overnight. Nobody has the luxury to wait for an obvious signal to start innovating. Why? Because if you’ve seen that signal, it probably means that somebody else has taken advantage of a new opportunity and has already left your company behind. To survive, companies themselves have to become forces of change. Innovation is the means to become that kind of force.
Innovation is critical for all business sectors and independent of the stage of maturity of the industry. That is because no industry— at any stage of industry evolution—is immune to change. Companies that embrace innovation are more nimble and flexible than their competition and are more able to adjust with prevailing market conditions to capture a disproportionate share of profit.
As an example, let’s look at the cell phone industry. Just recently, many observers had felt that the cell phones had matured and that the major players—Nokia, Motorola and Samsung— would just fight each other for a few points of market share. However, Apple’s iPhone changed the game with innovations in business model and product platform. In just three years, the iPhone would garner more profits than the market leader with only 5% of the market share. Typically, innovative thinking in mature industries is around the business model: the value chain and pricing model.
Innovation can also play a big role in markets that were assumed to be very resistant to change. We have seen companies in resource and commodity industries focused on low cost and high volume, such as cement and steel, separate themselves from other companies through innovation. This has happened in Mexico with CEMEX’s innovations that increase demand for consumption. In Korea, Posco has taken advantage of technology innovations for manufacturing. In addition, we have seen a few companies in the highly unattractive airline industry make a disproportionate amount of profit. Ryan Air and Southwest Airlines refused to play bigger competitors in relying on the traditional hub‐and‐spoke approach to managing passenger traffic. Southwest’s point‐to‐point innovation lowered costs and opened markets in ways that traditional companies had not even contemplated.
Companies in growth industries often do not fight for market share but focus on growing as quickly as possible. We are seeing this with social networks like Facebook, MySpace and Orkut. In order to grow rapidly, these companies have to maintain their innovative efforts to find new ways to access more customers while continuing to offer great customer experiences to ensure brand loyalty. You cannot rely on doing what you did yesterday to stay on the fast growth trajectory. This is what happened to Yahoo, whose complacence weakened its dominant space on the internet—a weakness exploited by Google.
If somebody wanted to write a history of innovation in the new economy, we could look at tremendous developments in alternate energy solutions, medical diagnostics and the next generation digital world called the “cloud.” These industries are in start‐up mode and the players have to be experimenting with both the product and the market to find a fit. The good news is that start‐ups inherently attract innovative thinkers.
The recent financial crisis may have misled some people about innovation. Some may feel that the last crisis was caused by too much innovation in the financial industry. I do not believe that was the case. Innovation was not the culprit: the failure was due to bad choices as well as poor management and oversight. The financial industry needs to innovate so that we can continue to have efficient financial instruments and markets that provide liquidity to those who can grow value and then repay those loans for a fair return.
In an economy that is growing more global and interdependent, making sure we all embrace innovation is good for everybody. Take the financial industry, for example. If the global distaste for recent financial blunders has the effect of blunting innovation efforts in the industry, we all will suffer. Following the recent recession, we all need financial markets to be safe and liquid. In other words, we need innovative methods to find how we can do both. Being too safe or too carefree won’t provide solutions to make the world prosperous. We could make similar arguments concerning many other sectors: health care; water conservation, farming, transportation, etc. etc. Innovation, in the end, is a global priority.